Lax corporate culture set up Takata's fall

Founding family's iron grip precludes necessary reforms

Takata Chairman and CEO Shigehisa Takada wielded absolute power within the company.

TOKYO -- Shigehisa Takada was adamant as usual. Even at the news conference on June 26 where he announced Takata's bankruptcy, the chairman and CEO of the beleaguered air bag supplier refused to acknowledge any fundamental quality problems with the company's products.

"It is a mystery why the abnormal ruptures [of the air bags] occurred," Takada said at the news conference. "We are still struggling to understand [the cause]."

Yet Takata's downward spiral is no enigma.

Around 2000, Takata started using ammonium nitrate as the solid propellant to inflate its air bags. Ammonium nitrate is a rather volatile compound used as a component of explosives, but it replaced sodium azide, which is a toxic chemical.

Takata embraced ammonium nitrate because it was less expensive than other compounds used by rivals as propellants in air bag inflators and also allowed the company to downsize its products.

There were, however, concerns about the tricky properties of ammonium nitrate, which can seriously degrade when exposed to such environmental factors as moisture and temperature changes.

Aware of the risks, Takata repeatedly carried out testing of worst-case scenarios based on far tougher safety standards than carmakers' requirements, according to the supplier.

The Takata management team at that time was involved in the process of choosing the chemical used to inflate air bags.

"We launched the product with confidence," Takada said.

Scratch the surface

But the company's manufacturing operations were not as flawless as executives proclaimed, and quality management was unsound.

The investigations into the air bag manufacturing operations that Takata conducted after it was first informed of an issue with its air bags by Honda Motor in 2005 found a raft of errors in the production process at its North American plant, such as flawed humidity management and insufficient pressurization.

It was discovered that some aspects in Takata's manufacturing process that are critical to safety were done manually. The company commissioned Samuel Skinner, a former U.S. secretary of transportation, to head an independent panel to review its manufacturing operations. Based on his findings, Skinner called for a "shift" in the supplier's "culture."

Then a series of reports about defective Takata air bags, which the company had deemed fine, emerged, prompting automakers to expand recalls even though the root cause of the problem remained unclear.

Later, an inquiry by the U.S. Justice Department disclosed that former Takata employees repeatedly falsified safety data provided to automakers.

These facts underscore major flaws in Takata's corporate governance and exemplify how the company's lax corporate culture created a breeding ground for indiscipline and misconduct.

Top down

A former Takata employee chalks it up to the dominant power of the founding family, which holds some 60% of the company's shares. The family's iron grip hampers the company's ability to identify and rectify problems with its organization, the former employee said.

Shigehisa Takada, who took over the reins from his father, Juichiro, in 2007 at the age of 41, wields "absolute" power within the company, according to the former employee. "[He] created an atmosphere that deterred even senior executives from arguing with him."

Takata rapidly globalized its operations in response to requests from Japanese carmakers, which were its key customers.One side effect of such focus was that the supplier strayed from keeping tabs on its overseas units.

In particular, the company's U.S. unit, which was at the core of its air bag operations and accounted for over 40% of group sales, asserted its independence from the Japanese parent.

An executive at a Takata business partner said, "I had the impression that the Takata head office in Japan was paying no attention to what the U.S. unit was doing."

The automakers, for their part, failed to respond in a timely manner to the problem because of their excessive faith in the quality of Takata's products.

Explosives experts say that all explosives degrade over time. Air bags use propellants -- which are, in effect, explosives -- but there is no time limit for their use or any rule concerning replacement.

Meanwhile, the average age of vehicles on the road in Japan has climbed to nearly 13 years.

The auto industry will continue facing air bag safety problems unless carmakers join together and hammer out a system to redress the situation.